Silicon Valley Bank’s (SVB) recent collapse likely won’t upend the property technology (proptech) sector, but proptech founders and venture capitalists had a variety of opinions about, and emotional reactions to, the financial institution’s fall, Commercial Observer reports.
Industry professionals criticized SVB’s lack of risk management, as well as Signature Bank, which also recently failed, for putting too much faith in risky cryptocurrency company depositors.
“We don’t even bank with SVB, but I’m angry right now,”said Actuate CEO Sonny Tai. “Imagine being a founder or an early employee and having your company that you’ve poured years of your life building killed by a bank run because panicked venture capitalists went and created a stampede by telling their portfolio companies to pull their deposits.
“They were essentially telling their portcos to trample on the bodies of other founders and to rush for the exits. It’s all good as long as you get yours, right? Considering that half of all venture-backed startups bank with SVB, there’s a lot of companies whose futures are uncertain right now because of selfish and myopic decisions.”
Despite SVB’s failings, some proptech entrepreneurs were complimentary about the bank and remained optimistic about proptech’s future. For example, Rasheq Zarif, co-founder and COO of ReWyre, a proptech procurement platform, told Commercial Observer that “SVB played an important role in supporting and catalyzing American innovation. Many startups would not be where they are today without the support it provided.”
Zarif also noted that he believes proptech will continue to thrive, as SVB wasn’t solely responsible for the sector’s success.
Brent Steiner, co-founder and CEO at Engrain, a property touring and mapping startup, and former SVB customer, also remained optimistic. The exec stated his company and RET Ventures, which was also involved with SVB, still managed to close their Series A round. His optimism stems from how he saw “the community rally around these companies to make sure that they’re OK, working together, and at least being prepared for a less desirable outcome, but ultimately having it resolved.”
Steiner admitted he was surprised how quickly SVB’s failure came about, however.
“They seemed to get caught (between) rising interest rates and maybe some questionable bond decisions that caught them on their heels,” he told Commercial Observer. “And then, obviously, I think the smartphone effects of this were when certain VCs caught wind of it, word spread, and then, boom, it fell.”
The downside of SVB’s collapse for proptech
Proptech companies may be optimistic about their sector’s future, but SVB’s fall is still a major hit to tech startups. SVB understood these businesses’ financial needs, which made it a more willing lender than other financial institutions. Without SVB, tech startups are likely going to have trouble finding other lending sources, according to Steiner. He noted Chase Bank is a good partner, but not nearly as flexible as SVB.
Steven Adler, CEO of flexible office space startup Upflex, also acknowledged how proptech friendly SVB was. The bank was quick to provide startups with enough credit to get their business started right away and garner venture capitalist interest.
SVB’s financial impact ‘was unbelievably beneficial for the venture community because they would give us lines of credit for companies that were losing money,” he told Commercial Observer. “Nobody else would give you a loan. That’s going to be the final outcome that people don’t realize is the biggest impact. It’s the additional liquidity that all of us got — between 20 and 33 percent more money.”
The bank’s startup-friendly approach came at a price, however, according to Adler. In exchange for those credit lines, SVB required companies to do their banking exclusively with them. All company credit cards had to be with the financial institution as well, which led to at least half of new tech startups banking with SVB.
The result could be proptech startups’ board of directors not allowing companies to go “all in” with one bank going forward.
“They’re going to mandate that we have banks like First Republic, UBS and Chase in addition to an SVB, including at least one bank that is too big to fail such as JP Morgan, Bank of America or CitiGroup,” Adler said.